by

Edwin G. West,

Carleton University

As an economics teacher in England, the late 1950s and early 1960s was a relatively uninspiring intellectual period for me. While the discipline of economics was still absorbed with Keynes, microeconomics was usually engrossed in static neoclassical models of efficient allocation in contrast with market failure. Theories of government failure had not yet appeared, and when they did they came from the U.S.

Prospects for me changed round about 1961 after I are received messages (directly or indirectly) from Harry Johnson to the effect that the real excitement and action was to be found, not in Europe, but in the U.S. And the subjects to look out for were: industrial organization, international trade, and public economics. Echoing these same sentiments, with respect to public economics, my Ph.D. supervisor, Jack Wiseman urged me to focus especially on what an economist by the name of James Buchanan was doing.

My first acquaintance with Buchanan in print was his Public Principles of Public Debt, published in 1958. His discussion of the problem of the burden on future generations was remarkably penetrating, as was his attack on the notion that "we owe it to ourselves". His use of subjective cost concepts was important here in demonstrating that we do not owe the debt to ourselves, but that the burden is shifted to future generations. But what Buchanan was most critical of was the contemporary assumption of Keynesian economists such as Lerner and Tobin that deficits were not the cause of high interest rates, high taxation, and low growth. Reviving the classical position, Buchanan responded by focusing on the erosion of inherited traditions of discipline that held deficits in check. We have to recognize, he has since maintained, that the natural proclivities of citizens favor deficit financing because: "Constituents enjoy receiving the benefits of public outlays, and they deplore paying taxes. Elected politicians attempt to satisfy constituents."¹ But Buchanan’s greatest challenge, eventually, was to ask how could the Lerner/Tobin type reasoning explain the explosion in public debt, relative to taxation from the 1950s to the 1970s (a relatively full employment period). It is remarkable how attitudes have changed when, in 1999, we have the U.S. President in effect boasting that the Goliath of deficit financing has at last been slain. For the first time in three decades, President Clinton announced in his 1999 State of the Union Address, the budget is now balanced. "From a deficit of $290 billion in 1992, we had a surplus last year [1998]. We are on course for budget surpluses for the next twenty-five years".² This change in mind-set on deficits has taken its time and has been difficult to accomplish; but Buchanan’s early and persistent stand on this subject against his professional peers surely deserves the fullest recognition.

My next sampling of Buchanan’s academic work also occurred around this period. This time it was his assistance with the Italian sections in the distinguished and most helpful publication of Classics in the Theory of Public Finance, (1958, MacMillan, N.Y.) edited by Richard Musgrave and Alan Peacock. Unilingual scholars world wide must have cherished the appearance of this work. Reaching back to 1880, the Musgrave/Peacock volume introduced us for the first time to a distinguished line of public finance specialists in Italy, Austria, France, Germany and Sweden and whose main interest was the optimum distribution of resources between governments and the private sector. Buchanan’s chapter consisted of his translation (from German) of Knut Wicksell’s essay "A New Principle of Just Taxation". Again I found the material unexpected and stunning in its logic and implications. As is now well known, Wicksell frequently opposed simple majority voting democracy because it was in danger of injuring the poor who are usually in the minority. The only way to prevent the "tyranny of the majority", Wicksell insisted, was the adoption of the principle of unanimity.

Wicksell’s essay has obviously had a profound influence on Buchanan’s subsequent work as well as on others. Not that one is automatically persuaded to go as far as the full extreme of unanimity rather than revised voting rules that are marginally more inclusive than the usual simple majority. More interesting is the connection between Buchanan’s discovery (or rediscovery) of the Wicksell essay and the emergence of the discipline of Public Choice. After all, the classic work The Calculus of Consent by Buchanan and Tullock appeared only four years later, and Chapter 6 of this work is an attempt at a practical response to Wicksell’s unanimity proposal.

My third example of Buchanan’s scholarship, and again one that initially must have taken his readers by surprise, was his entry into the debate on the Arrow theorem. It will be recalled that Arrow’s objective was to find a social welfare function that satisfactorily ranked alternatives according to the aggregation of individual ordinal preferences. The fact that none was found led to much pessimism about the potential of democratic institutions. Buchanan entered the debate by focusing on Arrow’s claim that the ordinary decision-making mechanisms of (a) voting and (b) the market, do not allow rational social choice. To regard rationality as an attribute of the social group, Buchanan insisted, "implies the imputation to that group of an organic existence apart form that of its individual components". (Buchanan, 1954, p. 116.) If we don’t like this conclusion then we must return to the decision-making of individuals as the only alternative criterion. Unfortunately, Buchanan observed, Arrow appeared to many to have given the impression that his findings of irrationality with respect to the social welfare function implies that the decision-making processes of individuals are also basically irrational. If this is true both voting and the market become suspect or unsatisfactory.

But suppose that conceptual social welfare functions are completely divorced from ordinary (group or individual) decision-making processes, what remains of Arrow’s analysis? Could he not introduce consistency as a requirement of rationality? Buchanan’s answer is again quite firm: while consistency of majority voting implies that the values of the individual voters do not change during the decision-making process, this is quite unrealistic in practice. Democracy calls for "government by discussion" and this means that individual values do change. "If individual values in the Arrow sense of ordering of all social alternatives are unchanging, discussion becomes meaningless." (Buchanan, 1954, p. 121.)

Majority rule is not necessarily consistent in the sense of providing the basis for a unanimous social welfare function primarily because it can over ride the wishes of minorities. But in a free society it is acceptable because the median voter is constantly shifting. It allows "jockeying back and forth among alternatives, upon none of which relative unanimity can be obtained." (Buchanan, 1954, p. 119.) But notice that the "jockeying" backward and forward "becomes a means through which the whole group ultimately attains consensus, that is, makes a genuine social choice" (ibid, p. 119). In this way Buchanan pushes in the direction of Wicksell or toward unanimity, now referred to as "relative unanimity".

I think that it is remarkable that the seminal Buchanan publications discussed here covered only four years, from his JPE piece in 1954 to Principles of Public Debt in1958. While much of his prolific work subsequently has been jointly authored, I have selected only single contributions and they have come from the exceptionally creative surge of the 1950s. Speaking for myself, I now regard it as more than a blessing that Jack Wiseman and Harry Johnson sent me those messages when they did!³